The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance

by Ron Chernow

  In any event, the hocus-pocus of German plots and Jewish bankers would soon seem silly and irrelevant. No Jew on Wall Street ever did as much for Germany as Jack Morgan would. Even as he terminated relations with Blumenthal in 1922, the State Department was urging him to sit on a committee of bankers who would outline the conditions needed for a massive German loan. After years of doggedly hunting German partisans, Jack Morgan would find himself Germany’s master banker. The phantom he had been pursuing all those years turned out to be himself.

  DURING the war, Jack had confounded critics who mocked him as a figurehead, a pale, plodding imitation of Pierpont Morgan. His British connections strengthened relations with the Allies, as did the partners he recruited for Morgan Grenfell. Having worked steadily in wartime, he continued to work eight or nine hours a day into the early 1920s. Yet he was a banker malgré lui, lacking the giant, locomotive energies that had propelled his father. As he readily acknowledged, he was a loafer, a studious amateur in the style of a British country squire. He loved gardening, yachting, reading detective fiction—activities of a mildly sedative nature. Once, in an indolent mood, he likened his brain to a soft, overboiled cauliflower. Also, he was haunted by his father’s breakdowns, illnesses, and death, which he associated with politics and overwork. So he was ready to rely on a strong lieutenant.

  Jack was a great fan of Harry Davison, who seemed the clear favorite as Morgan overlord in the postwar period. Davison had natural authority; Paul Warburg of Kuhn, Loeb once said that “men enjoyed following him.”30 His dedication to the bank was exemplary, as is attested by a cable that he sent to Nelson Aldrich after Pierpont died. Davison’s house, Peacock Point, had just burned to the ground and he would spend the summer on a houseboat while it was being rebuilt; he cabled Aldrich, “Loss of house mere incident in view of other crushing loss.”31

  Davison’s standing was greatly enhanced by the war. As head of the Red Cross War Council, he was elevated in 1919 to the presidency of a global league of Red Cross societies; during his Red Cross tenure, eight million volunteers were signed up. Many stories testify to Davison’s massive self-confidence. At one Red Cross rally, he heard former president Taft say, “It gives me great pleasure to introduce to you one of our most distinguished citizens, a man who would rather face a German battery than an audience.” Davison was halfway out of his seat when Taft thundered, “General Pershing!”32

  Another Davison story concerns a trip he made to London in 1918. Upon arriving, he was informed that King George V wished to see him. En route to Buckingham Palace, he was briefed on protocol by the king’s equerry and given a short list of royal taboos. He wasn’t to cross his legs, offer his hand first, or depart until dismissed by the king. Davison spent a pleasant hour with His Majesty, then, suddenly remembering another appointment, sprang to his feet—a breach of protocol. Who but a Morgan partner would be so blase about the king or not wish to prolong the experience? Buckingham Palace was just another stop on a busy itinerary; the House of Morgan had become aristocracy in its own right.

  After the war, Davison’s prestige was such that friends mentioned him as a possible presidential candidate. Davison himself demurred, saying it “could never be,” apparently because he had been involved in an extramarital affair that ended tragically in the spring of 1915.33 He was afraid the story would be dredged up. It turns out to be a grisly one. Davison and his wife, Kate, were close friends of a couple named Boocock, who had been neighbors in Englewood, New Jersey. Howard Boocock was treasurer of the Astor Trust Company. Davison was having an affair with Adele Boocock, a close friend of his wife’s, and Howard Boocock was at first unaware of the liaison.

  When Howard Boocock did learn of the affair, he became deranged, although in a style appropriate to his position. On March 22, 1915, he came home from the bank early and rather agitated. Yet he and his wife dressed for dinner as usual at their East Seventy-fourth Street town-house, and the servants noticed nothing untoward during the meal. Afterward, Howard retired briefly to the upstairs library to read his newspaper, while Adele played the piano in the drawing room below. Then Howard joined her. The servants heard the piano music stop abruptly, followed by two pistol reports. When the terrified maids rushed into the room, they discovered that Howard had shot Adele behind the right ear with an old army revolver; then he had shot himself above the left eye. The first person the distraught servants thought to telephone was Adele Boocock’s best friend, Kate Davison. It fell to Kate to notify the Boococks’ relatives. Kate agreed to take in the two Boocock children—who had slept through the shooting—and the Davisons paid for their education as well. This action was reminiscent of the Davisons’ earlier generosity in taking in Ben Strong’s children. The double Boocock shooting was one of the sensational “unsolved” crimes of 1915. A coroner’s jury concluded that Howard Boocock went haywire from worry over the possibility that he was suffering from intestinal cancer. The truth would remain buried until the present.34

  In 1920, when Harry Davison returned to the Corner from the Red Cross, he had lost his magnetic, buoyant charm. He complained of queer headaches and sleeplessness and took a year off with his family, which they spent at Magnolia Plantation, his estate in Thomasville, Georgia. A photograph of Davison on a picnic there shows him smoking a blunt cigar and wearing a white shirt and a dark three-piece suit; even in poor health and on a rustic outing, a Morgan man couldn’t let his image languish. But the stay didn’t put an end to his headaches and dizziness. In August 1921, Davison was diagnosed as having a brain tumor.

  He was a manly type who refused to become an invalid. One day at Peacock Point—his sixty-acre Greek-columned estate on Long Island’s North Shore that nearly formed a continuous line of property with Jack Morgan’s and George Baker’s estates—he and Dr. Frederick Tilney were watching a school of porpoises in Oyster Bay. Tilney remarked that he had always wanted a porpoise brain for his research. “Bring me the elephant rifle and tell them to have the motor boat ready for us at once,” Davison ordered a servant.35 Davison went out and shot his porpoise.

  Harry Davison died in May 1922, at the age of fifty-four, during an operation to remove the tumor. He left an estate estimated at $10 million, including $4.5 million destined for his son, Frederick Trubee, who had been confined to a wheelchair since his college days. During a summer off from Yale during the war, Trubee and several classmates had formed the first naval reserve air unit, and Davison had bought his son a plane. As Trubee participated in a demonstration show at Peacock Point, the plane’s rear engine came loose and hit him in the head, leaving him a paraplegic. His father’s special bequest was meant to allow him to pursue a political career without any material distractions. Trubee became an assistant secretary of war for aviation in the Coolidge and Hoover administrations and served as president of the American Museum of Natural History. As indomitable as his father, in spite of his handicap he played tennis and shot big game for display in the museum.

  At 23 Wall Street, Davison’s death left the path to power unobstructed, and Tom Lamont strolled into a leadership position. Deeply indebted to his mentor, Davison, Lamont perpetuated a Morgan tradition of building monuments to dead kings by writing a hagiographic biography of Davison. Of his other role model, Pierpont, Lamont wrote, “He was not interested in little matters, conducted or proposed by little men.” He viewed Pierpont’s reign as one of a vanishing gentility—“a kind of golden age of chivalry in affairs.”36 This early exposure to Pierpont and Davison gave Lamont a vision of the banker as statesman and empire builder rather than as bureaucrat or paper pusher.

  During the 1920s, Tom Lamont would be the brains of the Morgan bank and the most powerful man on Wall Street. When journalists talked of “prominent banking opinion,” they had usually been speaking with Lamont. A Wall Street saying held that “Mr. Morgan speaks to Lamont and Mr. Lamont speaks to the people.”37 In his early banking days, Lamont had been deferential, even obsequious toward his elders, content to play the serviceable co
urtier. He always knew how to handle the Morgans. Both Pierpont and Jack were brooding loners who liked charming extroverts of an equable disposition. Pierpont had the sociable Bacon and Perkins; Jack, Davison and Lamont. Where the Morgan family was intensely private and domestic, these regents lent the bank a high-society gloss. And Lamont was perceptive enough to give Jack the confidence-bolstering praise that had been withheld by Pierpont.

  It is a mystery how Tom Lamont, a poor parson’s son, became everybody’s image of Wall Street elegance. The first Lamont came to America from Scotland in 1750. Lamont’s father was a former Greek professor and a Methodist parson (Tom would later become a Presbyterian). The senior Lamont had an Old Testament face—a broad, square forehead, full beard, and eyes that burned with severity. He banned dancing, cards, and even neighborhood Sabbath strolls for the family; Lamont’s mother, luckily, was gentler. Tom spent a thrifty boyhood in upstate Claverack, New York, plotting his escape and devouring novels. He attended both Phillips Exeter Academy and Harvard on scholarship. He admired, but wasn’t awed by, the wealthy boys he met. He was a completely self-invented figure and as such would be emblematic of an age based on wild speculation and a frothy optimism. Like Jay Gatsby, he lived in the manner of a poor boy acting out his most lavish fantasies. He was so successful at playing the aristocrat that he passed for the genuine article.

  Short and slim with rounded shoulders, smiling eyes, and thinning hair, Lamont was often photographed before his office fireplace, hands in pockets, relaxed, and debonair. Usually he wore an amused, searching expression, as if inviting intimacy yet skeptically probing his guest. He looked at the world closely, as if sizing it up, taking the measure of someone in a glance. He seemed immune to depression, congenitally cheerful, and unflappably poised. His favorite expression was “easy does it” and his son, Corliss, said he never saw his father angry. He had a staggering capacity for work, and his voluminous papers at the Harvard Business School resemble the work of ten busy men. Tom Lamont was a prodigy—in business, finance, and diplomacy—and his career, dazzling in scope, would rival that of Pierpont Morgan himself.

  Lamont had a genius for friendship and was irresistible to the literary world. He was a newspaper publisher and a large shareholder in Crowell Publishing, the only Morgan partner drawn to that industry. When British poet John Masefield toured the United States during the war to generate sympathy for England, he became so attached to Lamont that he dedicated his War and the Future to him. Lamont also befriended Walter Lippmann, John Galsworthy, and H. G. Wells. He had a writer’s itch to record his thoughts and preserve them for posterity, dashing off hundreds of personal letters monthly.

  His conviviality wasn’t restricted to celebrities. Each spring, he holed up with three old college chums in Atlantic City, where they fished, played bridge, and talked. He maintained hundreds of relationships—like juggler’s balls, he kept them magically aloft—and each acquaintance felt especially singled out by thoughtful gifts, cards, and invitations from 23 Wall.

  If Tom Lamont assumed Morgan royalty with such ease, it had much to do with Wall Street’s extraordinary self-confidence in the twenties and the banker’s new diplomatic role. Lamont was a born politician and meshed exquisitely with his historical moment. In 1928, the Egyptian king said to him, “Mr. Lamont, I will wager I am the only head of a foreign state who has ever received you without asking for a loan for his government.”38 He was probably correct. Later Lamont appeared on a list of sixty-three citizens who ruled America and would certainly have made far shorter lists. In 1937, Ferdinand Lundberg, the radical journalist, would say that Lamont “has exercised more power for 20 years in the western hemisphere, has put into effect more final decisions from which there has been no appeal, than any other person. Lamont, in short, has been the First Consul de facto in the invisible Directory of postwar high finance and politics, a man consulted by presidents, prime ministers, governors of central banks.”39 Overheated prose aside, Lundberg erred in the right direction.

  THAT Lamont had no ordinary dreams can be seen from a 1916 effort to induce Henry Ford to take his car company public. The move was not accomplished until 1956, after Ford’s death. The House of Morgan, with its large stake in railroads, had been myopic in recognizing the importance of the automobile industry, and Pierpont had rebuffed an early Ford request for financing. Then George Perkins lost a chance to finance General Motors in 1907, when he sneered at William Crapo Durant’s forecast that sales would soar to half a million automobiles per year and cars would someday outnumber horses on America’s streets. For turn-of-the-century Wall Street, cars were rich men’s toys, plagued by unreliability and poor roads. This attitude rankled Henry Ford and reinforced his contempt for Wall Street bankers.

  By 1916, the car companies had acquired new respectability on Wall Street. General Motors declared its first stock dividend—the largest in New York Stock Exchange history—and early skepticism turned to voguish enthusiasm. Henry Ford had introduced the assembly line in his Highland Park plant and in 1914 declared a $5, eight-hour day for his workers—terms generous enough to draw twelve thousand job seekers. Ford now cranked out over half a million Model Ts annually, and Lamont saw the chance for a splashy deal in the Pierpont tradition. That the Senior’s ghost hovered in Lamont’s mind was clear from a letter he wrote to a Ford associate in which he stated that if Ford took his company public, there would be “nothing just like it since the Steel flotation 15 years ago.”40 As a rule, Ford opposed public ownership and thought shareholders should work for the company. Nevertheless, he invited Lamont to unite the “best ideas” of J. P. Morgan and Ford. What blend of guile and geniality could tame Henry Ford?

  In a memo, Lamont flattered but provoked Ford. He began: “You have the premier motor car industry of the country and of the world. . .. From nothing you and your associates have built it up to its present splendid proportions.” With Ford softened up, Lamont became shockingly blunt: “The present make-up of your company is your only weakness. So long as the control of the company rests absolutely in your hands, just so long is the future of the business dependent upon the life of one man. . . . There must . . . come to you moments of almost deep oppression for the responsibility that you have to carry day by day.” Having expressed sympathy, he stirred up anxiety, pointing to potentially troublesome minority shareholders. Then came the proposal itself, wrapped in a delicate tissue of jargon. Lamont suggested a “large financial operation” that might relieve Ford of burdensome responsibilities—in short, the first public offering of Ford stock.41

  In a second letter, Lamont drew a parallel between Ford’s sale of his company and Carnegie’s sale of his steelworks to U.S. Steel. Since Ford was an individualist of the Carnegie type, it was a smart analogy. Lamont proposed that Ford, like Carnegie, retain a substantial interest in the company, holding senior debt “of the highest character, insuring handsome and stable returns to you and your heirs, or nominees, for years to come”—Lamont liked this tony style with fancy clients. But once he had advanced his idea, he backed off and pretended to offer his idea impartially for Ford’s consideration. A few weeks later, Ford cordially acknowledged the letters, expressed interest, but let the matter lapse. It was a noble failure, in the end showing only Lamont’s fearless ambition and his rare power to manipulate words.

  After the Ford proposal was rejected, the House of Morgan stayed on the alert for opportunities in the automobile field. One finally came, through the Morgan link with the du Ponts, whose explosives and chemical business had profited from the Morgan Export Department. The war left the du Ponts awash with cash and with large paint, varnish, and artificial-leather manufacturing plants. They saw a potential market for these products in cars and so accumulated General Motors stock until in 1919 they held a 23-percent stake. They had every spot on the GM finance committee save one, that of founder William Crapo Durant.

  A handsome, sporty man with a winsome grin and a flair for invention, Durant had started out as a rich bu
ggy manufacturer. In September 1908, after being turned down by George Perkins, he financed the new General Motors Company himself, merging the car operations of Ransom E. Olds and David Buick and subsequently acquiring Cadillac. Unlike Henry Ford, who stamped out endless Model Ts, Durant favored a diversified product line. He was a persuasive, charming character—he “could coax a bird right out of a tree,” Walter Chrysler once said—but a disastrous manager, impetuous and erratic.42 This son of a failed bank clerk was also an inveterate stock market gambler whose specialty was GM stock itself. Lamont said he tossed around millions as if they were billiard balls.

  In 1920, J. P. Morgan and Company sponsored a $64-million stock offering to finance a General Motors expansion. To please the du Ponts, the bank retained a sizable block and privately placed the remaining shares in safe hands. Then Ben Strong at the New York Fed engineered the 1920 recession. Henry Ford slashed car prices, and unsold GM cars piled up at dealerships. As GM stock plummeted, the underwriters—including the House of Morgan, the du Ponts, and Durant himself—struggled with huge losses in unsold shares. Durant had also formed a pool to prop up GM—a stock syndicate kept secret from the du Ponts and J. P. Morgan.

  Cool as a flimflam artist, Durant pretended to take the disaster in stride. He didn’t slacken his opera attendance, and he affected a cavalier air. Meanwhile, he faced ruin, for he had used his huge holding of GM stock as collateral for loans. If he had to sell stock to pay creditors, he would not only collapse the stock price but panic the Exchange and ruin GM’s credit. To make matters worse, he had freely lent GM shares as collateral for other people’s borrowings. If he were ruined, he would ruin many others at the same time.

  Where the du Ponts trusted Durant, Dwight Morrow and other Morgan partners were suspicious. As GM shares broke below 20, Durant kept trying to hold back the tide by buying up more shares on margin. He continued to deny that there might be a problem. As the stock dropped as low as 12, his losses steadily mounted. By the night of November 18, 1920, Durant needed close to $1 million to meet margin calls before the market opened the next morning. Like Henry Ford, Durant despised bankers, viewing them as complacent men with tunnel vision who plundered the inventions of more original minds. Now he had to phone the House of Morgan and ask whether they would buy his GM stock at the closing price of $12 a share. Pierre du Pont and the Morgan partners, who thought Durant an incompetent, feared a market crash unless he were rescued.